Key takeaways from Zero to One by Peter Thiel

Peter Thiel is controversial, to say the least. I must admit I hesitated to pick up Zero to One for that very reason. That might be stupid, but I’ve always kept a distance to controversial figures. I’m glad I didn’t in this case.

This was the first book in a long time that has changed one or two of my strong opinions. Other books, like Thinking, Fast and Slow changed my mind, but only because my positions weren’t well thought out, just something I’d picked up while reading or listening to somebody (I suspect most opinions are like this). Zero to One, on the other hand, was chock full of arguments for why something I thought I knew was straight up wrong. Following are two things I changed my mind about.

Being a Contrarian

People have too much faith in their opinions. Exempting yourself from a general human behavior is dumb, so I’ve always been careful to doubt my own opinions. In questions where meta-analyses where available, that has been my position. If that wasn’t the case, I’ve used the opinions of people I admire as a proxy for truth.

If your goal is to be right about as many things as possible, I think this is a great strategy. From what I’ve observed, really smart people tend to be right, and you can safely accept their viewpoints. What clicked for me when reading ZtO, however, was that although this reasoning is sound, the premise is wrong.

On the road to success, your goal is not to be right about as many things as possible – there are no premiums for safe bets. Your goal is to be right about something huge that other people are wrong about. If you believed housing wasn’t going to crash in 2006, you were listening to popular opinion, and you were right. But what was your reward for being right? Not much. If, however, you believed housing was going to crash in 2007/8, you were not listening to popular opinion, and there was a big premium tied to that. Both viewpoints were correct, but being correct is not the deciding factor. What’s important is the reward for being correct, and popular opinions aren’t rewarded.

Now, you don’t want to be wrong about a lot of things either, so how do you mesh the two? You have to adopt both strategies: listening to expert opinion on topics you’re not an expert in while having strong opinions on select questions. Understanding your own position is paramount here. If you can’t defend it, drop it.

The lean start-up

The lean startup is an attractive ideal. A truly lean company can adapt to the market to find product-market-fit. This is done by building a minimum viable product and iterating. The idea is porn to engineers. A process for success that doesn’t rely on the judgment of a small group of people? Testing hypotheses in real-world conditions to make sure you don’t fool yourself? Yes and yes.

The reasoning, I have to admit, is attractive. To understand the limitations of the idea, look at this crudely drawn graph:

The y-axis is the total impact of your idea (whether that be monetary or otherwise), and the x-axis is your product. The red dot is the current product.

Following the lean methodology, you make some changes and test them to decide whether they are good or bad. A small change to the right would yield a lesser impact, while a small change to the left would yield a greater one. Naturally, you move your product a little to the left. Doing this, you would quickly end up in the local maximum:

A truly world-changing company, however, lies not in the local, but the global maximum. This is not to say you shouldn’t follow the lean methodology, after all, it’s very good at improving your product to find product-market-fit. Sometimes, that’s what you need, other times though, calculated bets based on a limited understanding are the best option. They might fail, and most will, but they also might make a product that is close to or can be iterated to the global maximum.